To counter inflation, the European Central Bank raises interest rates by 0.5 points and plans another increase

Led by Christine Lagarde for three years, the European Central Bank (ECB) raised interest rates for the first time in 11 years. Historical turning point. This decision marks the end of the era of negative interest rates that began in 2014. Thus the key interest rate rises from zero, as it has been regulated since 2016, to 0.50%, while that tax portion of undistributed bank liquidity in credit has been negative since 2014, increased from -0.50% to zero. Target: Low inflation, which reached 8.6% in June over one year, and is expected to rise further in the coming months. DrOther price hikes The ECB said it would be “relevant” and its “data” would depend. For Christine Lagarde, who expects “inflation to be very high for some time”, the economic outlook is “darkening” in the eurozone.

Expensive mortgages

The consequences for individuals are well known: mortgages will cost more, but in return, savings products will produce more. Quoting Le Figaro, Cyrille Chartier-Kastler, founder of the niche website Good Value For Money, confirms: “We’ll see savings products emerge in the coming months that will take advantage of this new environment.”

The specter of recession in the eurozone

However, the guards of the euro will have to approach this credit crunch with caution, at a time when fears of a new debt crisis are renewed in the wake of political instability in Italy and a move away from Mario Draghi.

Uncertainty about gas supplies from Russia could plunge the eurozone into recession in the event of a sudden halt to deliveries by Moscow. Raising prices too quickly can aggravate the situation. All of Europe is waiting in this context to see if the Nord Stream 1 gas pipeline will recover its shipments, after more than 10 days of complete interruption of work.

Bridging the gaps between borrowing countries

To avoid a possible rise in borrowing rates that countries like Italy, in the midst of a political crisis, will have to push to finance their debt, the European Central Bank will also on Thursday unveil the outlines of a new “anti-fragmentation” shield.

It was designed to smooth out the differentials between borrowing rates, or “differences,” between risk-free borrowing countries, such as Germany, and other more fragile countries. Strict terms of use must be set, the custodians of the euro are not entitled to help the budget of governments.

But Frederic Ducrozet, chief economist at Pictet, warns that “the self-induced political crisis in Italy is the typical case where the European Central Bank should not intervene”.

American example

The European Central Bank, with this increase in the cost of credit, is only following the example of the US Central Bank (FED) which has been raising interest rates since March. At the end of July, it could be raised by 75 basis points.

Note that Japan has left its ultra-loose monetary policy unchanged, in line with the expectations of most economists, while significantly raising inflation expectations for the country.

(with AFP)

ECB rate hike: Italy, the eurozone nightmare